Private markets in DC: the big questions
The UK pensions landscape is changing with a bold shift to incorporating the high-return potential of private markets. For scheme sponsors and advisers, the focus now is on what an optimal allocation looks like and how to construct it.
Authors
The UK defined contribution (DC) pension market is on a journey to integrating private markets into portfolios, driven in part by the Government’s Mansion House agenda.
But what does an optimal, long‑term allocation to private markets look like for scheme sponsors? And what do they need to consider in terms of portfolio construction - balancing the prospect of higher returns with the fees required to pay for them - while also adding UK exposure into the mix, in line with another of the Government’s reform priorities?
These were the big questions tackled in a recent roundtable hosted by Corporate Adviser, and featuring Future Growth Capital’s Chief Investment Officer Ped Phrompechrut, and Head of Client Solutions and Product, Sam Murphy.
Key topics covered during the discussion included:
- Long-term allocations to private markets will likely be higher than the current Mansion House target of 10%, with most schemes likely to target 15-25% - and potential for larger schemes to seek even greater exposure, in line with peers in places like Australia where private allocations can be as much as 40%.
- There is broad consensus on the potential of private markets to enhance retirement outcomes through access to premium long-term returns, but achieving this in practice will depend on implementation, access to high-quality managers, and optimal portfolio construction across asset classes and strategies.
- The market is going through a transition and there are participants that need to be taken on the private markets journey, which for some will translate to gradual shifts in allocations and a phased approach.
- Constructing a private markets portfolio means identifying the core portfolio building blocks, being agile enough to take advantage of opportunities as market dynamics evolve, and balancing specific needs of schemes in terms of liquidity and growth.
- While there is a need to balance the drive to boost investment in the UK growth economy and maximising retirement outcomes, we see a broad and deep opportunity set in the UK – and opportunities to increase the share of domestic long-term capital in the fundraising mix while remaining highly selective.
Click on the download button to read the full report.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.
Authors
Topics